Powell Industries, Inc.

Welcome to the Powell Industries Earnings Conference Call. At this time, all participants are in a listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star, then one on a touch-tone phone. To withdraw your question, please press star, then two. Please note this event is being recorded. I would now like to turn the conference over to Ryan Coleman, Investor Relations. Thank you. You may begin.

Thank you, and good morning, everyone. Thank you for joining us for Powell Industries' conference call today to review fiscal year 2023 fourth quarter and full year results. With me on the call are Brett Cope, Powell's chairman and CEO, and Mike Metcalf, Powell's CFO. There will be a replay of today's call, and it will be available via webcast by going to the company's website, powellind.com, or a telephonic replay will be available until December 13th. The information on how to access the replay was provided in yesterday's earnings release. Please note that the information reported on this call speaks only as of today, December 6th, 2023. and therefore you are advised that any time-sensitive information may no longer be accurate at the time of replay listening or transcript reading. This conference call includes certain statements, including statements related to the company's expectations of its future operating results that may be considered forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Investors are cautioned that such forward-looking statements involve risks and uncertainties and that actual future results may differ materially from those projected in these forward-looking statements. These risks and uncertainties include, but are not limited to, competition and competitive pressures, sensitivity to general economic and industry conditions, international, political, and economic risks, availability and price of raw materials, and execution of business strategies. For more information, please refer to the company's filings or the Securities and Exchange Commission. With that, I'll now turn the call over to Brett.

Thank you, Ryan, and good morning, everyone. Thank you for joining us today to review Powell's fiscal 2023 fourth quarter and full year results. I will make a few comments and then turn the call over to Mike for more financial commentary before we take your questions. We ended our fiscal year on a strong note as the Powell team delivered another great quarter to close out one of the best years in the company's history. The sharp recovery of our industrial end markets led to $1.4 billion of orders in fiscal 2024, by far the most we have ever recorded in a 12-month period and twice that of the prior year. The demands that this sharp recovery have placed upon our team members continue to be significant, including tremendous front-end effort from our sales and estimating teams, as well as our project leadership teams as we ramp activity across all of our operating groups. I am incredibly proud of the entire Powell team performance. It is in years like these of elevated project activity, delivering on time and on budget, that we earn and build on our reputation with our customers as a reliable, trusted partner as we continue to differentiate ourselves from our competition. Revenue in the fourth quarter grew 28% to $209 million, while revenue for the full year grew 31% to $699 million. Strength across our core industrial end markets, particularly within LNG, as well as in our utility and commercial and other industrial market sectors, drove the substantial growth compared to the prior year. Mike will provide additional detail on our revenue growth by market sector in a moment. We recorded $171 million of net new orders in the fourth quarter, which reflects our previously communicated expectation that order activity will remain healthy but returned to a more normalized trend compared to previous quarters. We also delivered a gross margin in the fourth quarter of 24.9%, which is an increase of 430 basis points year over year. While our margins have certainly benefited from this higher volumes, our productivity initiatives as well as strong project execution and subsequent closeouts are all helping to support significantly improved margins compared to recent years. We are confident that these measures combined with our quality backlog can support gross margins above our fiscal 2023 targets set in the high teens and deliver margins consistent with total fiscal 2023 levels in the low 20s for fiscal 2024. On the bottom line, we recorded earnings per diluted share of $2.17 in the fourth quarter, roughly three times higher than the prior year and $4.50 per diluted share for the full year, which was roughly four times higher than fiscal 2022. Our backlog remains incredibly strong at just under $1.3 billion. It was roughly unchanged sequentially, but has more than doubled the $592 million from one year ago. We continue to feel confident that our current backlog is comprised mainly of projects that speak to Powell's core competencies. Both the nature and scope of the project mix and our backlog are core to what we do best, and we are confident that we can deliver every dollar of our backlog on time and on budget. We previously discussed some of the capital improvement projects that will facilitate both incremental capacity as well as improved production efficiency in several of our facilities. In the fiscal third quarter, we initiated an expansion of our Houston facility located along the Gulf Coast to support the rise of our backlog while also helping us remain competitive on our schedules for future business. Work on the expansion largely concluded in November, and we are now productively using the expanded capacity. As far as staffing levels are concerned, availability of quality labor, while always front of mind, is less of a headwind today than it was in recent quarters. This is in large part due to the hard work of our human resources team as they have developed creative personnel solutions and continue to ensure our manufacturing floors remain adequately staffed. The availability and cost of certain engineered components remains a challenge, though overall the inflationary environment and costs of most raw materials have certainly moderated. The challenges that came with a period of lower project activity immediately after the pandemic, followed by the inflationary environment, required that we prioritize execution and identify efficiencies across the organization. Today, we are enjoying the benefits of those efforts, while the largest markets we serve have enjoyed a strong recovery. Voting activity remains robust across most market sectors. We continue to see favorable opportunities within LNG, gas pipeline, and the gas to chemical end markets. We've also been pleased with overall activity within the renewable markets of hydrogen, biodiesel, and related biofuels, such as sustainable aviation fuel, as well as carbon capture and sequestration. We envision these markets being larger contributors to our financial results going forward. Additionally, we continue to capitalize on opportunities within our commercial and other industrial sector. Data centers have been and remain an active area of growth in this sector. Expanding our market breadth has been a focus across the business and our ability to leverage our products and expertise into a fast-growing market like data centers is a perfect example of these efforts. Critically, this is a market in secular growth that reduces the cyclicality of our order book and is a perfect complement to our core industrial markets. Our near and medium-term priorities remain unchanged as we enter fiscal 2024. We are focused on growing our electrical automation platform, expanding our existing services franchise, and diversifying our product portfolio, either through tangential applications that complement our existing offerings, as well as expanding the scope of our product catalog into new electrical technologies. We expect our R&D spend to increase in 2024 as we work toward this end. In summary, we are entering fiscal 2024 with roughly $1.3 billion of backlog which provides durable and predictable project schedules to build upon. We continue to see healthy levels of project activity across our end markets and believe that the fundamentals supporting our core industrial markets remain favorable and robust. We've also taken successful steps to unlock operational efficiencies, improve staffing levels, and optimize our procurement of raw materials, all of which have had a significant positive impact on our profitability. We are confident that our execution and our strategic initiatives, coupled with favorable industry dynamics, will support another successful year for Powell. With that, I'll turn the call over to Mike to walk us through our financial results in greater detail.